Steps banks should take to reduce pain of laying off workers

As Kenyan banks continue to adjust their operations following the enforcement of the law capping loan interest rates in September at 14 per cent, a number of them have resorted to job cuts in a bid to reduce costs, with the latest being First Community Bank.

“The board and I have been closely monitoring our implementation of the transformational agenda and we have concluded that operational costs need to be further reduced. Unfortunately, this means that the bank will have to reduce staff costs going forward,” said Fazal M. Saib, the CEO of the bank in a memo sent to the employees.

“Given this, we have decided to employ an external firm to review and identify those areas where staff reductions can be made without negatively affecting the bank’s operations, taking into consideration the employee’s skill level and overall attitude.”

However, as banks retrench to reduce operational costs, such a move will not only harm the laid off employees but also the remaining staff.

“General observations made after a retrenchment exercise, revealed that there was overloading of work to the remaining employees without any corresponding remunerations, which led to low morale, stress, apathy and certain inefficiency/ ineffectiveness,” said Hillary Thomas Wander, who conducted a case study on The Effects of Retrenchment/ Staff Rationalization by Kenya Tea Development Authority (KTDA).

KTDA conducted the staff reduction in two phases: one in 1998 to 2000, using voluntary early retirement, natural attrition, mandatory retirement on attainment of 55 years of age, resignations and freezing or abolition of vacancies.

The second phase took place from January 2001 to June 2003 using the retrenchment/resignations to reduce staff, including the outsourcing of key skills and competencies.

Passive environment

Wander observed that long-serving employees’ morale was the most affected after the retrenchment. “The morale of long-serving employees was at an all time low due to inequitable and unmatched remuneration packages, uncertainty about their jobs and inadequate preparation on sensitisation about the retrenchment and how to cope with its aftermath by the employer (through relevant trainings). This led to lack of interest and a passive working environment.”

He noted that some 70 per cent of the workforce was hard hit by the effects of retrenchment, being 616 employees out of the 880 workers in the agency.

The remaining 30 per cent, or 264 employees or less, who were newly employed in the company were well motivated through the provision of exclusive high remunerations and either did not understand the predicament or did not sympathise with the long serving employees’ situation.

Communicating well

For companies who opt for retrenchment to reduce costs, communicating well to employees is considered best practice so as to avoid bringing company operations to a halt as staff speculate what is to come next.

In her Fortune magazine article, The Downside of Downsizing, Anne B. Fisher, the author of Wall Street Women, interviewed several retrenched employees and company managers, and found that low productivity during the early stage of downsizing is caused by employees spending most of their time in the office talking and worrying about whether they are getting laid off, which leads to detachment from work and employees spending a lot of time murmuring in the corridors or in each other’s offices.

“Silence is the worst policy. A frank and continuous flow of information especially from senior management can keep the rumour mill from spinning out of control and enable workers to concentrate on business,” she said, in findings that put communications into a central position in delivering retrenchment as an affective corporate solution.

-African Laughter